Dairy prices ended a four-month losing streak at
GlobalDairyTrade amid ideas of support from a milk production slowdown, with
peak output past in the northern hemisphere and the likes of New Zealand still
in the low season.

Prices at the twice-monthly auction, run by New Zealand dairy
giant Fonterra, rose by 0.9% - the first increase since the February 4 event.

The increase retraced only a fraction of the 26% decline
that dairy commodity prices suffered during the losing spree, blamed on seasonally
rising production in the northern hemisphere after a strong season for New
Zealand, the top milk exporting country, and softer Chinese import demand.

"After frantic purchasing in the first quarter of 2014,"
fuelled by a period of tariff concessions on imports from New Zealand, "Chinese
importers have exited the market as they look to run down accumulated
inventories," Rabobank said on Tuesday.

However, the bank added that "these lower prices are
enticing other buyers back into the market".

'Buyers re-entering
the market'

Already in the European Union, there had been signs of dairy
commodity prices stabilising and, in some cases, rising with average prices of
butter rising by 0.2% in Belgium, France, Germany and the Netherlands between
May 26 and June 8, according to Eucolait.

Skim milk prices rose 1.0% during the period.

"This potential rebalancing of prices could be an indication
that buyers are re-entering the market to cover longer term needs and are not
expecting prices to fall further, especially as production has now passed its
peak in the northern hemisphere," the UK DairyCo bureau said.

Milk output typically peaks in the EU in around April, with
the so-called spring flush in volumes encouraged by strong pasture condition,
and when cows are freshly back into production.

In the UK, for instance, milk deliveries had fallen back to
41.3m litres on June 7, the latest day for which data are available, from a
2014 high of 43.8m litres on May 3.

Australia and New Zealand, meanwhile, are in their low
season, with output not set to peak until around October.

Skim milk vs whole
milk

The increase in GlobalDairyTrade prices was led by butter
milk powder, which soared by 17.0%, with rennet casein gaining 4.6%.

However, signally, the price of whole milk powder, which
accounts for most volumes traded, also rose, by 2.4%, offsetting falls in
prices of skim milk powder, of 0.2%, and of anhydrous milk fat, which dropped
by 3.8%.

The discount of whole milk powder, which reached $269 a
tonne at the previous auction, was "unsustainable", the investor said, with the
product, in containing fat, usually trading at a premium, which averaged $282 a
tonne over the previous year.

"The question was whether skim milk powder would go down to
meet whole milk powder, or vice versa.

"The fact that whole milk powder rose looks like a sign of
demand at these lower prices which bodes well for a stabilisation in the
market."

Whole milk powder reached a discount of $374 a tonne to skim
milk powder early last year – only to gain a premium of more than $1,000 a
tonne within three months.